MOD Logistics (Bicester)

Elfyn Llwyd Excerpts

Wednesday 18th April 2012 Westminster Hall

[Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC)]

I am pleased to have secured this debate. I raised the issue last year when I asked the Prime Minister about a pair of £44 boots that MOD logistics at Bicester had shipped to Northern Ireland at a cost of nearly £800. That is not the only example of MOD Bicester’s excessive spending, excessive pricing and excessive commissioning that has come my way in the intervening months. The scale of management error is so large and so endemic that, to my eyes, it almost looks systematic. In a nutshell, we believe that the logistics operation is having its costs inflated in order to hive it off into the private sector. I also believe that MOD logistics is being fattened for that purpose.

[Tony Baldry (Banbury) (Con)]

The hon. Gentleman uses the word “we”. Unless he is becoming very royal, who does he mean when he says “we”? For whom is he speaking when he makes these attacks on my constituency?

[Mr Llwyd]

First, I am making attacks not on the hon. Gentleman’s constituency, but on some people who might not be completely open in the way in which they deal with matters at MOD logistics at Bicester. Secondly, those who advise me are included in the “we”—I do not pretend to be of any royal stock. I hope that I have made my position clear. The hon. Gentleman knows that my argument is not with him or his constituents, but with the MOD logistics department, which is the whole purpose of this debate.

I believe that the officials responsible for this are perhaps positioning themselves to make a fortune out of it in due course; and that, to make that operation less apparent, misled the Minister, who has in turn, unintentionally, perhaps misled the Commons. I have evidence and a confession from the head of logistics, who said on Monday night that all the information that I had been asking for over the last six or eight months was available, but had been declared to the Minister to be unavailable. There was a repetition of the word “unfortunate” when he said that the Minister had been misled.

The same official told me that there are plans to restructure the department, which may be announced in the coming weeks, so the debate is timely. I did not ask for this debate to make any particular political point, nor do I want to embarrass the Minister, who I know is a man of integrity and who may well have been placed in the unhappy position of unintentionally misleading Parliament on one occasion at least. He did indeed correct himself in due course, which is what I would expect of him.

This is a debate about administrative propriety upon which all parties in this Chamber agree, about a specific exercise in holding the Government to account and about the spending of public money. It is also a debate that asks, “Does Parliament have any power to hold the Government to account? Does the Government have the necessary control over their civil service in this area, or are we all to be treated as nothing more than a nuisance by officials who spend £27 million a year of the public’s money?”

I suspect that what we have here may be a fraudulent operation. It needs urgent and perhaps unusual treatment by the Minister’s office. My suggestion is that the Minister appoints a small team of two or three who will be given access for 48 hours to the TMS—transport management system—computer system that records the logistics operation and who will then report to him in due course. They should be the Minister’s own team, because there are some in senior management positions who are perhaps not worthy of complete trust. Information has been concealed, withheld and manipulated. Those people now have no incentive to do anything else. Most important, there is a proposal for further restructuring

“to bring together the component parts of the logistics organisation into site-based groups.”

That sounds like a return to the structure before the last restructuring. There is also a rumour of a management buy-out. The idea that the same management who created this mare’s nest can then profit from it will cause revulsion in anyone not directly benefiting from it.

Before I lay out a summary of the case, I ask the Minister for assurances that the people, however senior, who have supplied me with information will not suffer from proceedings by their managers or from other parts of the MOD hierarchy. I have no doubt that the Minister will respond to that in due course.

Military logistics planning is usually conducted in acronyms and the language of consultants. For the convenience of the House, I will present the case in layman’s terms. Ministry of Defence logistics is the term used for transporting equipment for the Army, Navy and Air Force round Britain and overseas. The main southern distribution hubs from which supplies originate are Bicester and, secondarily, Donnington. Bicester stores and sends equipment to our forces nationwide and worldwide, via RAF Brize Norton or Heathrow. It was from Bicester that the equipment for Iraq was delivered, for example. The main day-to-day task in peace time is resupply: Bicester transports everything from ship engines and heavy machinery to documents, toilet paper, body armour and ration packs and, yes, the famous boots going to Northern Ireland. There are flight steps from the Falklands, equipment, kit, documents, jiffy bags and pallets—all are ferried round the UK and round the world largely from the two centres.

Let me describe succinctly the operational structure before and after the restructuring—how it was done then and how it is done now. Before restructuring, supplies were transported out from Bicester in one of three classes of vehicle: a Luton van size; a removal truck size and a standard articulated lorry—a 44-tonne truck. Those vehicles carried supplies from Bicester to one of the regional centres around the country, from where supplies were sent on in smaller vehicles to their final destination. It is the hub system by which all major transport companies, such as FedEx, United Parcel Service and the Royal Mail, work. There is a universal logic to the system: the large trucks carry larger quantities of goods longer distances more cheaply, and the smaller vehicles conclude the delivery with a short local journey.

That conventional model was abandoned in 2008 and a new system was put in place. The managing director of Bicester was at that time, and is now, Steve Brannigan. He decided to close these regional distribution centres, to reduce the fleet and number of drivers, and to make up the shortfall in in-house capacity by greater use of private hauliers, contractors and couriers—generically called third party logistics, or 3PL for short. As a result of that new structure, it was said, the cost of the regional distribution centres—nearly £4 million a year—was saved. In a letter dated 28 July 2011, the Minister describes those as “net savings”, but my understanding is that that is very far from the truth. Again, I stress that I do not impugn the hon. Gentleman’s veracity over any action that he has taken. The crucial figure has been concealed and withheld.

What is the total sum paid to private transport? That figure is not yet forthcoming. We are told the total budget for transport, but not the total budget for private transport, and I believe that it is much higher than has been reported by senior people. The restructuring of the system reduced the number of in-house trucks and drivers and contracted their replacements from outside the Department. The idea behind the restructuring was to outsource much of the driving work and make efficiencies by competitive tendering. Palletways, the trucking firm, now does much of the work that the MOD used to do itself. Thus Bicester sends four or five articulated trucks carrying the supplies that it needs to have delivered to the Palletways centre in Staffordshire. Palletways then does the job that Bicester used to do in precisely the same way that Bicester used to do it, by sending the supplies out to its own regional distribution centres.

It is said that contracting out has a good reputation in management circles. The use of private contractors promises greater flexibility, lower overheads and more competitive tendering. Paid staff are not idle when there is no work. Contractors are assumed to have a commercial incentive to work harder than employees as their position is less secure. That is the theory. Often it works, but it does not translate into good practice automatically.

Has the restructuring of Bicester MOD logistics been a success? Has the evaluation process worked? The results should be apparent in the accounts, including the total operating sum spent on logistics before restructuring and the total operating sum afterwards. Those figures have been held very close by the Bicester MOD logistics management. In fact, they refuse to reveal them. Why is that? I believe that it is because the total cost of private transport makes a nonsense of the outsourcing, that total third party logistics costs show that no savings have been made, and that the restructuring has actually resulted in net losses.

It is easy to see how private contractors would struggle to match in-house costs: private sector drivers have a higher cost per hour than public sector drivers; there is the cost of operating licences and there is VAT on agency driver fees. Compare that with the defence infrastructure of bases and personnel, which can be used intelligently at low, or even no, marginal cost. There is also the need to transport MOD supplies to the main contractor’s depot 75 miles away from Bicester.

Those factors prompt questions that need to be answered. Did the restructuring work? Have the new arrangements saved money? Were the highly paid consultants who devised the new system worth their fee? The fact is we do not know whether the business operation has been analysed to show whether it works better or not. The figures have been arranged to show a financial benefit from the new structure. Real-time reports from the computer system, as well as common sense, present a very different picture.

The Minister will remember the question that started this process off last year; it was about the famous pair of boots that were transported from Bicester to Northern Ireland at a cost of almost £800. At that point, we were trying to establish the ongoing costs of the restructuring and we asked what those costs were. However, the costs of couriers were left out of the answer, when they are about a third of the total. The Minister said:

“I have been categorically assured about the omission of the courier costs.”

He also said that the error was

“a result of human error rather than any intent to mislead”.

That is what the Minister said.

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

If I had let an inaccurate answer lie on the record, I would have been criticised. It was a genuine clerical error—a mistake. There is no conspiracy behind those figures at all. It was an error that we corrected as soon as we became aware of it. In my experience, it has happened two or three times. It was an error—no conspiracy.

[Mr Llwyd]

As I have already said, I do not have any real argument with the Minister about this matter, and I accept what he says. However, we are told that there was “a formatting error.” I must remind the House that the MOD is responsible for transporting nuclear missiles around the country and that “a formatting error” could have incalculable consequences.

The Minister has been assured that there was an “error” and I accept what he says. In addition to the “formatting error”, however, the bill for private contractors is not merely the bill for Palletways, private couriers and agency drivers from Pertemps. I know that there are as many as 25 private trucks a day coming in and out of Bicester MOD that are not Palletways trucks or trucks used by private couriers—25 trucks a day that have not appeared in any explanations or admissions.

As I have already said, the Minister has been told that there were £4 million of net savings from the closure of regional distribution centres. The figures given by Logistic Commodities and Services Bicester show that £7,535,000 was spent on private contractors, private drivers and private couriers in 2008-09, and in 2009-10 £6,305,000 was spent on private transporters. That is a palpable reduction, but those figures do not include the cost of private hauliers—those 25 trucks a day. Where do the costs incurred by those private hauliers appear? They include Hacklings, Metcalfe Farms Haulage, Kenyons, Newsomes, Reason Transport, Andover Transport—the list goes on. Who is paying for those trucks? Out of what budget are they paid? There is some “find the lady” trick going on here, or some accounting sleight of hand to hide the costs of between 6,000 and 10,000 trips a year. Where are those hidden journeys accounted for? Who has paid for them, and how much? What does it do to the net saving figure claimed by officials? These questions must be answered.

I tabled a series of parliamentary questions asking for basic management information. I was trying to determine whether the restructuring has been a success. I asked the pertinent questions about how many miles were driven, the number of trips that were made, the hours that were taken, the class of vehicle driven and the cost per mile. I was told that the information was not held centrally and was not available, except at disproportionate cost. That is not true. The Minister was also told that the information was not available, but he was misled. The information is available within half a dozen keystrokes on the TMS computer system, assuming it has not been deleted—I have evidence of deletions from the central computer, so I do not dismiss that possibility. The TMS system records every journey, every driver and every distance. All the information is there within half a dozen keystrokes and we would hope that it is there. Otherwise how could the Department know what it was actually spending and what it was doing?

I had believed that the information was readily available, centrally held and available at almost no cost—and so it was admitted to me by Neil Firth, the head of logistics, on Monday. He repeated that it was “unfortunate” that the information was not provided. First, it was a “formatting error”; then it was “unfortunate”; and next it will be “the dog ate it”. The Minister and Parliament are being taken for a ride. That is not “unfortunate”; it has put a Government Minister in the position of misleading Parliament. In my experience, that is a very serious matter. Again, I stress that I am not impugning the Minister.

I have other examples of that type of activity. People can see courier vans lined up on the A34 outside MOD Bicester in the dead of night waiting for a job to be called. They pick up, they drive to their destination before 6 am, the unit is shut and the courier drives back to Bicester with the parcel, saying that it was undeliverable. Then the courier gets to deliver it again in daylight hours. That means one job, two charges. It happens all the time. Couriers pick up at night and deliver before the depot is open. There are days, weeks and years of it. Every Christmas and every Easter, deliveries are sent out and returned on the first day of the holiday. They come back marked, “Unable to deliver”, as the unit is “closed for the holiday”, so the courier tries to deliver it the next day, and the next day, and the day after that. “Closed for the holiday”, “Closed for the holiday”—one job, three charges, every year.

There are many other examples of couriers being contracted at £100, £125 or £150 to take small parcels here and there, even though MOD trucks are going to the exact same destination at the exact same time—that, too, was admitted to me on Monday. It is suggested that half a trailer of failed deliveries comes back every night from Palletways to Bicester, to be redispatched and recharged again and again. We have seen examples of MOD trucks and drivers standing idle while commercial trucks and drivers are paid to do the work that could be done in-house.

I understand that the MOD units can pitch for MOD jobs, but they have to quote using a kerbside price for fuel, which is around £1.45 a litre. For the same job, Eddie Stobart can quote using his bulk price in Belgium of 80p a litre. Who made that decision? Why is the MOD systematically instructed to price itself out of competition with the private sector? I believe that the costs are being increased superficially and drastically, and that the goose is being fattened.

The Minister is categorically assured, and so assures the House, that there have been net savings of £4 million, but the evidence is not available, apparently, except at a disproportionate cost. I believe that there have not been net savings, but that the same people who carried out the disastrous restructuring are quietly trying to conceal their errors in another one. I repeat: it is also possible that the costs are being allowed to escalate through daily inefficiencies, to make a management buy-out seem like a good idea and demonstrate palpable savings. This might be straying into other forms of liability, but it is possible that the management are tolerating, and in some cases promoting, such inefficiency and cost inflation in order to buy out the business and make a fortune from it.

It is in the interests of good government, in the interests of the public and in the interests of accountability and transparency that a fast, urgent investigation is undertaken, perhaps with two or three investigators, with a report prepared for the Minister. If there is to be another restructuring, it is essential that it is done properly and openly, and in a way that permits challenge and scrutiny, especially in these days when cuts are being made in every service and the armed forces are at full stretch. I hope that this debate will put things right. I feel sure that the Minister will investigate the matter thoroughly and urgently, because nothing else will do.

--- Later in debate ---

[Tony Baldry]

I do not think that the Minister or any of us would disagree with that. The point that I am making is that the hon. Gentleman who introduced this debate did so on the basis that systemic failures and abuses of practice were occurring at Bicester. My response is that he has not produced any evidence. Further, if there were any such evidence, I assure him that that it would have been drawn to the attention of management, politicians, the House and me by the trade unions and that it would have been investigated.

I understand, of course, that in the run-up to ministerial decisions about the future of defence logistics, there are some around the country who will have an interest in rubbishing Bicester, but I am sorry that it has been done in such a way. I will come to what I think would have been the correct way to deal with the matter.

[Mr Llwyd]

It is no part of my function to rubbish Bicester. I came across something that looked doubtful, and I raised it appropriately. Let us be fair: the hon. Gentleman was with me when I met the head of logistics. When I put the accusations to him, he said, “That may well have happened, yes; we’re not perfect,” and so on. They are not groundless. By the way, I am a Privy Counsellor.

[Tony Baldry]

I apologise if I did not refer to the right hon. Gentleman as such. He should not be quite so touchy. What Neil Firth said at that meeting was, as everyone would concede, that thousands of items go out from Bicester each day, and errors are always possible, particularly as priority is set not by Bicester but by the requesting unit.

A little while ago, a constituent of mine, who left Bicester shortly afterwards on voluntary agreement, made allegations not dissimilar to those made by the right hon. Gentleman, relating to boots and one or two other items. He did not assert that there were systemic failures at Bicester, but he thought that occasionally, boots and other things were made more costly than necessary. I immediately took up the matter with Ministers in the Ministry of Defence, and the Minister for the Armed Forces, the hon. Member for North Devon (Nick Harvey) responded. In fairness, in response to my letter, a full investigation was carried out at Bicester. The Minister for the Armed Forces said, perfectly fairly:

“Every day, consignments and routes are developed to ensure that freight carriage is optimised and the use of commercial hauliers balanced against in-house resources. Of course, from time to time, routing errors do occur, but this must be placed in context. On a daily basis the JSCS”,

joint support chain services,

“handles between 8,000 and 10,000 transactions, of which the large majority are delivered on time and in the most cost-effective way. Indeed, the costs of transport have been reduced by £10 million in the past two years against 2008 operating costs and the level of service improved from a success rate of 80% of transactions completed on time based on 10 working days to a success rate of 95% based on seven working days.”

Suggestions were made about agency staff. The Minister for the Armed Forces said:

“Of course there are occasions when agency staff will be required to supplement existing staff resources, for example to respond to increases in demand and to meet operational needs. In such cases, existing MOD-wide commercial arrangements are used which ensure that agency staff are employed at the most cost-effective rate.”

He went on to conclude:

“JSCS is an operational organisation that exists to meet the often urgent requirements of the armed forces. The organisation, therefore, has to balance these demands against achieving value for money for the taxpayer. The 2009-10 annual report and accounts clearly demonstrate that operating costs are now 28% less than they were six years ago, but that service delivery has significantly improved.”

I suspect that if every public service could show a 28% improvement over six years, we would all be grateful.

There are two issues in respect of Bicester that I should like the Minister to hear. First, I genuinely believe that defence logistics should be consolidated at Bicester, for the reasons that I have said. I also suspect that, as part of that, the private sector will increasingly need to be involved, as it is currently involved, not least when investing in new logistics sheds, warehousing and equipment at Bicester. However, age is an issue. Bicester’s existing work force are loyal and have worked there for a long time, and being civil servants is an important part of their lives. I hope that if changes are made at Bicester, transitional changes will be possible whereby those with civil service status can retain it if new private sector investors and partners start to work more with the MOD on logistics handling, support and delivery. I am sure that that is possible.

I invite the right hon. Member for Dwyfor Meirionnydd to come to Bicester. He is welcome to visit, and to come with me to meet the trade unions of Bicester, so that he can put his allegations and assertions to them and the work force at first hand. I think that he would be interested in their detailed response, but he would also see the huge land footprint at Bicester. It has a lot of surplus space that is not being used as effectively as it might be. I have no idea why, in the first world war, such a huge area of land was taken for those purposes at Bicester. The rumour is that it was to resist zeppelin attacks. That is a matter of history, but we have an enormous amount of space; we are at the heart of the country; and we have excellent rail and road connections.

Rather than an investigation into unfounded allegations about what is said to have gone wrong at Bicester, it would be more helpful to have a review of how to get the maximum potential for the country out of the Bicester estate, both for the defence industries and in terms of releasing surplus land for other commercial and residential use. The potential is considerable.

I do not think that the assertions made by the right hon. Gentleman have any substance. There is no smoking gun. In an operation as large as that at Bicester, things will occasionally go wrong, but I suspect that other logistics operations such as DHL, the Post Office and Amazon are not always perfect. I do not think that the percentage of error is greater in defence logistics than in any other major logistics operation.

To conclude, I return to the first line of the Library briefing for the debate:

“Bicester’s MP has called for the Ministry of Defence to consolidate its UK logistic operations in Bicester.”

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Defence (Peter Luff)]

I congratulate the right hon. Member for Dwyfor Meirionnydd (Mr Llwyd) on securing the debate. He was kind enough to say some generous things about me, and I say them back to him. He is a gentleman whom I respect very much, and we have worked together for many years in the House—for more than 20 years, to be precise. All that I would say to him is that I think there is a scandal in logistics, but it is not the one that he thinks. I shall come on to that.

I reject the right hon. Gentleman’s underlying assumption. He sees a conspiracy where there is none. The suggestion of fattening up for some kind of killing is just wrong. We had an opportunity to discuss these matters yesterday, but he pulled that meeting, having had a meeting with Neil Firth and colleagues. I think that he has misrepresented what he was told at that meeting, although I was not there, so I cannot be sure. From what I heard, he got a very different story from the one he has reported to the House today.

[Mr Llwyd]

I do not accept that. I had a note-taker with me, and I referred to the notes taken.

[Peter Luff]

In that case, I will make the specific rebuttal now. It is true that the right hon. Gentleman was told that mistakes are likely to be made. There are 8,000 deliveries a day across the logistics operation. If 99% of them go right and 1% go wrong, that is 80 a day that go wrong. That is a lot of anecdotal attacks to make on an organisation that is basically being well run. He was told that mistakes are inevitably made, but against a background of 8,000 daily deliveries, it is unfair to assert some kind of systematic error, inefficiency or corruption. That is the problem that we have.

I will study the detailed assertions made by the right hon. Gentleman. I will not be able to respond to them all during the debate. I shall write to him and to the other hon. Members who have participated in the debate, as best I can, as I look at the matters individually, though I think that I shall be able to satisfy him on all questions—at least if he is prepared to be open-minded about the answers. I assure him that if any company or Ministry of Defence official has acted inappropriately, it will not be tolerated, and action will be taken. We have a zero-tolerance policy on those matters, as I know from several occasions during my two years in my post.

I would say to the hon. Member for Plymouth, Moor View (Alison Seabeck) that there is an inefficiency and fraud hotline at the Ministry of Defence, so that anyone with a concern about inefficiency or fraud can ring up, completely securely—whistleblowing is entirely encouraged in the Ministry of Defence—and make the allegation. I am aware of no such allegation of impropriety in the logistics organisation being made on the hotline. If someone has gone to the right hon. Gentleman with specific allegations that is their democratic right—I do not want to stop them doing that—but I wish that they had come to me through the fraud hotline and enabled me to address such concerns sooner, if they exist.